Free trading is paying off for brokerage firm Charles Schwab.
In the same month the firm dropped trading commissions, Schwab added 142,000 new brokerage accounts, 31% more than the number of new clients added in September and a 7% jump from October of last year. The new accounts brought Schwab's client assets to a record $3.85 trillion.
"It looks like the events around the zero commissions were helpful to Schwab," said Richard Repetto, Principal at Sandler O'Neill, who covers the eBrokerage industry.
Last month, Schwab stopped charging commission fees for U.S. stocks, ETFs and options trades. The broker previously charged $4.95 per trade. Rival brokerage firms Interactive Brokers, TD Ameritrade and E-Trade took the same step in dropping commissions last month, escalating the brokerage-fee wars.
Initially after the announcement, Schwab's stock tanked as investors worried that the lost commission revenue, which fed about $90 million to $100 million in quarterly revenue, would pressure margins. However, the stock has recovered, bolstered by strong earnings that showed client assets reached a record high of $3.77 trillion in the third quarter. Schwab is hoping the free trading will lure more clients in, allowing it to offer them other services which come with a fee.
Rival brokerage firms E-Trade, Interactive Brokers and TD Ameritrade all experienced increased trading in October, noted Repetto, but none of the brokers saw the same jump in new accounts that Schwab did. Interactive Brokers' client accounts rose 1% in October from September's pace.
"We'll have to wait and see how much revenue they can generate from that incremental trading," said Repetto.